Unleashing the Positive Power of Measurement in the Workplace

Unleashing the Positive Power of Measurement in the Workplace

Dean R. Spitzer

Effective management is based on a foundation of effective measurement, and almost everything else is based on that. Organizations are conglomerations of many systems. Measurement is actually the most fundamental system of all. The measurement system—for good or ill—triggers virtually everything that happens in an organization, both strategic and tactical. This is because all the other organizational systems are ultimately based on what the measurement system is telling the other systems to do. No organization can be any better than its measurement system. If the measurement system works well, management will tend to manage the right things—and the desired results will occur.

THE IMPORTANCE OF MEASUREMENT

So why is measurement so important? Here are some of the most compelling reasons:

· It cuts through the B.S. and gets right to the point. People can (and often do) advance their points of view with incredible vagueness until they are challenged “to measure it.” Suddenly, clarity emerges.

· It makes performance visible. Even if you can’t see performance directly, you can see it indirectly using measurement. This is the concept of “operational definitions” that is such a critical part of effective measuring.

· It tells you what you need to manage in order to get the results you want. Using “measurement maps,” you will be able to identify, understand, and discuss the high-leverage relationships that drive results, and apply them to your benefit—and to the benefit of your organization.

· Measurement makes accountability possible. It’s difficult to hold yourself—or anyone else—accountable for something that is not being measured because there’s no way to determine that whatever it is that you’re supposed to do has actually been accomplished. Measurement tells you whether you (and your employees) are doing the right things at the right times—the essence of accountability.

· Measurement lets people know if they are off-track so that they can do something to correct their performance. Without measurement, feedback is often too vague and too late—and feedback that is too vague and too late is useless.

· Measurement tells employees what is important. If you don’t measure it, people won’t pay attention to it. As one colleague said: “Measure it, or forget it.”

· Measurement makes things happen; it is the antidote to inertia. We have all experienced, for example, how milestones in a project plan get people moving energetically toward a goal, while open-ended timeframes inevitably lead to complacency and low energy. Give people measurable goals—and help them measure their progress—and they will make progress.

· Measurement results in consequences (rewards and punishment) that further reinforce the inherent power of measurement. Any effective system of rewards and recognition, and any system of performance appraisal, must be based on a solid foundation of measurement.

Above all, measurement helps you to understand what is really happening in your organization and to take action based on that understanding. Measurement enables you to make comparisons, study trends, and identify important correlations and causal relationships that will help establish a roadmap for success. And this is just a sampling of what performance measurement—when well used—can contribute to organizational effectiveness.

The good news is that organizations are finally discovering the importance of measurement. The bad news is that most organizations are still using it very poorly.

THE DYSFUNCTIONS OF MEASUREMENT

Unfortunately, when used poorly, not only does performance measurement not live up to its positive promise, but it can be a very negative force in organizations. In The Agenda, Michael Hammer (2001, p. 105) puts the problem this way: “A company’s measurement systems typically deliver a blizzard of nearly meaningless data that quantifies practically everything in sight, no matter how unimportant; that is devoid of any particular rhyme or reason; that is so voluminous as to be unusable; that is delivered so late as to be virtually useless; and that then languishes in printouts and briefing books, without being put to any significant purpose. . . . In short, measurement is a mess.”

What is commonly referred to as “measurement dysfunction” occurs when the measurement process itself contributes to behavior contrary to what is in the best interests of the organization as a whole. When measurement dysfunctions occur, specific numbers might improve, but the performance that is really important will worsen. While some of the most egregious examples of measurement dysfunction in the history of business were at companies like Enron, WorldCom, and Tyco, its more mundane manifestations are being played out virtually every day in almost every organization around the globe.

Most organizations are full of examples of negative, self-serving measurement: measurement used for self-aggrandizement, self-promotion, and self-protection; measurement used to justify pet projects or to maintain the status quo; and measurement used to prove, rather than improve. Although the more routine cases of dysfunctional measurement might not appear to be very serious individually, the collective consequences of small doses of measurement dysfunction can be profound.

Probably the biggest problem with measurement is not the flaws in the system, but with the consequences, both positive and negative, that so often follow flawed measurement. There are two major types of measures, based on how they are used: informational measurement, measurement that is used for informational purposes, and motivational measurement, measurement that is used for rewards and punishment.

Most of the functionality of measurement, as described in the previous section, is related to the enormous value of measurement as a source of information—information for organizational members to use to improve management and the work that is done. However, when measures are tightly linked with rewards or the threat of punishment, the informational value of the measurement becomes subordinated to its use for inducing people to exert more effort. This is where the major problems begin.

Most organizations have very strong contingencies that tell employees, either explicitly or implicitly, “If you do this (behavior) or achieve this (result), you will get this (reward, punishment).” Because, in most organizations, behavior and results can’t be directly observed, these performance expectations are operationalized by how they are measured. The performance measures become the way to achieve rewards and to avoid punishment. No matter how many other things might be measured, what is rewarded or punished becomes the focal point.

Striving for rewards is one of the most important aspects of life and work. But when rewards are at the end of the line, measurement becomes a means to that end. Furthermore, the greater the rewards that are offered, the less focus there is on the information that measurement can provide. When the focus is on the carrot, it’s difficult to see anything else! And human beings are very adept at doing whatever it takes to get a reward. Because measurement is so powerful, especially when coupled with contingent rewards, measurement dysfunctions are quite prevalent and widespread. Furthermore, when people are being rewarded by the existing measurement system, they will resist any changes that will reduce their rewards.

While linking rewards and measurement does not automatically lead to dysfunction, it very significantly increases the probability of it happening.

HOW PEOPLE EXPERIENCE MEASUREMENT

People tend to refer to those things they perceive as negative and threatening as the enemy. When I ask participants in my workshops about their personal measurement experiences, the negative ones far outnumber—and, more importantly, outweigh—the positive ones. Even more distressing is that, even when I probe deeply, most people can’t even think of any positive experiences!

Almost everybody has, at one time or another, experienced negative measurement used to expose negative things—errors, defects, accidents, cost overruns, out of stock items, exceptions of all kinds—and to trigger negative emotions—like fear, threat, fault-finding, blame, and punishment. They also know how dangerous measurement can be in the hands of those who don’t use it well or benevolently. Although negative measurement can get results, it is mostly short-term compliance, and it leaves a bad taste in people’s mouths.

For most employees, measurement is viewed, at best, as a “necessary evil.” At worst, it is seen as a menacing force that is greeted with about the same enthusiasm as a root canal! When most people think of performance measurement at work, they tend to think of being watched, being timed, and being appraised. This is why Eliyahu Goldratt (1990, p. 144) says that “the issue of measurement is probably the most sensitive issue in an organization.”

The environment of measurement tends to have a major influence on how measurement is perceived by employees and, therefore, how they respond emotionally to it. Since measurement is such an emotionally laden subject, the environment in which it is being conducted is particularly important. Even if people aren’t directly involved in measurement, almost everyone feels strongly about it. And yet, very few people talk about it—which, as we will see, is one of the primary problems with the way performance measurement is implemented in most organizations.

Measurement is powerful, and—for better or for worse—what is measured tends to be managed. Most employees also seem to intuitively understand that measurement provides data upon which many important decisions are made—most prominently personnel decisions. Although seldom explicitly acknowledged as such, measurement is important to people because they know that their success, their rewards, their budgets, their punishments, and a host of other things ultimately are, directly or indirectly, based on it.

Many of these negative attitudes about measurement at work are due to its association (and confusion) with evaluation. Few people, including corporate executives, know the difference between measurement and evaluation—and there is a very significant difference! The word “evaluation” is really composed of three component parts: “e,” “value,” and “ation.” The central element of the concept of evaluation is value. When you evaluate, you place a value on whatever you are evaluating. Most people don’t mind measuring, or even being measured; they just don’t like being measured upon. And that’s what most evaluation is—having a value placed by an external agent on us and our performance. The outcome of an evaluation is a judgment. Evaluation is essentially about making value judgments. People don’t like being judged—especially when they are suspicious about the fairness of the evaluation process and the motives of those who are doing the judging. As long as measurement is closely associated with judgment, there will be fear. And as long as there is fear, measurement will be viewed as a negative force—rather than a positive one. And, as long as the “measurement experience” is negative, there is little hope that performance measurement will realize its potential as a powerful and transformational force in organizations.

In my book Transforming Performance Measurement (Spitzer, 2007), I talk about four keys to transforming performance measurement and making it a more positive force in organizations. These four keys are summarized

In the rest of this chapter, I will discuss those four keys.

CONTEXT

The first key to transforming performance measurement is context. Much of what we have already discussed relates to what I call the “context of measurement.” Context is everything that surrounds a task, including the social and psychological climate in which it is embedded. This includes such factors as the perceived value of measurement, communication around measurement, education around measurement, measurement leadership, and the history of how measurement has been used in the organization. To a large extent, the context of measurement tends to reflect how measurement is perceived by employees and, therefore, how they respond emotionally to it. Interestingly, even if it is accomplished with great technical skill, it can still carry a negative implication. How people respond to measurement is largely a function of how it is used—that is, what is donewith the data that are collected makes a huge difference in how measurement is perceived. For example, as we have seen, it is experienced much differently if it is used to inspect, control, report, or manipulate—compared with when it is used to provide feedback, to learn, and to improve.

Table 3.1  Keys to Transforming Performance Measurement

The importance of the context of measurement in an organization cannot be over-stated. It can make the difference between people being energized by measurement or people just minimally complying with it, and even using measurement for their own personal benefit (that is, gaming or cheating). No matter how sophisticated the technical aspects of your performance measurement system, how managers and employees experience it on a day-to-day basis will be due more to the “context of measurement” than anything else.

So what can be done to improve the context of measurement? Here are a few important points: Be aware of the sensitivity of measurement. Be vigilant for dysfunctions. Use it for learning and improvement, so that employees can see the positive side. Avoid using measurement for judgment and, above all, don’t confuse measurement with evaluation. Discuss measurement openly and honestly. Educate employees about measurement and help them use it well. Make measurement less tightly connected with judgment and rewards. And make sure that evaluations are much more data-based.

FOCUS

The second key to transformational performance measurement is focus. The right measures will provide laser focus and clarity to management, while the wrong measures, or too many measures, will likely cause lack of focus.

What gets measured gets managed, and what gets managed gets done. Selecting the right measures can create enormous leverage for any organization. And, of course, the things that are measured command management attention. Because of the validity of “You get what you measure,” it is vital to select the right measures. If the right things are measured, the right things will happen. Unfortunately, most organizations’ measurement systems lack focus, and most of what organizations measure is routine—the hundreds or thousands of measures that permeate every nook and cranny of organizations. This dilutes performance measurement—like trying to boil the ocean! When everything is important, then nothing is really important. This focus on the wrong things, or the lack of focus, tends to do little more than perpetuate the status quo. However, in today’s competitive marketplace, organizations need to have very clear focus. Not only do companies need to do the routine things well, better and better, they must also find new measures that are high-leverage so that they can achieve competitive advantage. This can be done by focusing on a critical few transformational measures—measures that will make a real difference to competitive advantage and that will differentiate the organization from the others with which they compete—measures that will make a real difference to the organization’s competitive advantage.

While most organizations realize that measurement is essential for managing, they don’t realize how important the selection of their measures is. Unfortunately, organizations and organizational entities fritter away much of the power of measurement by not differentiating between the critical few measures that will have the greatest impact from the hundreds, or thousands, of other measures—the trivial many—that permeate every area of their organizations. Knowing what to focus on is crucial to success. Organizations must measure the right things, even if it means coming up with new measures.

Probably the most frequent question I am asked by clients and prospective clients is: “What should we be measuring?” This question drives me crazy, because too many executives and other managers think it is sufficient just to track generic or standard “metrics.” These are what I call “routine measures,” and they are satisfactory for maintaining the status quo, but not for taking the organization to the next level. Many organizations are paralyzed by billions of bits and bytes of fragmented raw data that clog their information systems—like the supermarket chain that was collecting 340 million different data points per week, but using only 2 percent of it!

An organization’s routine measures are not differentiators. How can any organization differentiate itself from the competition while measuring exactly the same things as the competition? It is also important to realize that when we choose to measure a particular object of interest or dimension of performance, we are—at least by default—choosing to ignore other things. Just look at your own organization’s measurement system and you will probably find a vast array of measures that keep your business running—but few, if any, that will help get your organization to the next level.

Focused measurement is not just about “getting things done; it’s about being effective, and getting the right things done. In order to thrive—not just survive—and move to a higher level of performance, organizations need to focus their measurement on one, or a critical few, measures that matter most. The key to what I call “transformational measures” is finding the most crucial few measures that provide the organization with the greatest insight into competitive advantage.

Two great examples of transformational measures are (1) the “turnaround time” measure used at Southwest Airlines, which enabled people (from pilots, to flight attendants, to maintenance workers, to refuelers, to cleaning crews, and everyone else) to see something that was formerly invisible, the time from arrival at the gate to departure from the gate, so that it could be managed to create value and achieve competitive advantage and (2) the “cash conversion cycle time” at Dell Computer, the time from the outlay of cash for parts to the receipt of payment for completed computers, which was able to help the company conquer its cash flow problems and also provide the mechanism to make its innovative business model work in practice, not just in theory. Everybody knows that if aircraft turnaround time increases, Southwest will lose the key to its competitive advantage—and everybody knows what they have to do to keep that number low.

Most transformational measures start off as what I call “emergent measures”—measures that emerge through increased understanding of the major drivers of business success. They rarely come from a textbook, off a menu, or are provided by a vendor. Many of the emergent measures will be measures of difficult-to-measure intangibles, because transforming organizations are realizing that many of their key value drivers are intangible. But don’t let anyone tell you that something isn’t measurable. Everything is measurable in some way that is superior to not measuring it at all.

The next great challenge in organizations is to measure and manage intangible assets. While most of the tangible components of businesses are already being accounted for (albeit in rather traditional ways and with rather predictable effects), in today’s world, the most important drivers of value in today’s organizations are mostly intangible. As Herb Kelleher (1998, p. 223), former CEO of Southwest Airlines, put it: “It’s the intangibles that are the hardest things for competitors to imitate. You can get an airplane. You can get ticket-counter space, you can get baggage conveyors. But it is our esprit de corps—the culture, the spirit—that is truly our most valuable competitive asset.” That’s the problem: Most of what is valuable is intangible, but most of what is measured is tangible!

According to James Brian Quinn (2002, p. 342), “With rare exceptions, the economic and producing power of a modern corporation lies more in its intellectual and service capabilities than in its hard assets.” And Michael Malone (2000) insists that the biggest financial question of our time is how to value the intangible assets that account for as much as 90 percent of the market value of today’s companies. Did you ever think that one of those unmeasured and unmanaged assets might be the key to your organization’s next competitive advantage?

True transformational change will not happen until organizations begin to think much more creatively about the value of the assets, how to connect them with strategy, and how to link them to competitive advantage. One of the reasons it is so important to begin to think differently about intangibles such as intellectual capital is that the way you measure them will determine how you treat them. For example, your organization probably has already begun to manage people differently, because it is at least beginning to view them as assets worthy of investment rather than just as costs to be expensed.

The key to transformational measures is to change perspective. In many organizational areas, dramatic shifts in vision have taken place because of relatively minor changes in perspective, such as from “product-line profit” to “customer profit,” or from “on-time delivery” to “perfect orders.” In addition, few realize that one of the key success factors for supply chain management is the ability to measure trust throughout the system, and a key measure is “supply chain trust.” Transformational measures measure many of the same things, but from a different perspective.

The biggest problem of performance measurement is that the world is different, but the measurement of performance is pretty much the same. If you were to compare the workplace of today with the workplace of fifty years ago, the difference is dramatic. But if you were to compare how most performance is measured, it looks like a throwback to yesteryear. Just think how little progress has been made in performance appraisal! And those who “mind the gates” are not particularly encouraging of those who want to change the measures—much less the “metric system”—because, after all, these gatekeepers have benefited enormously, and continue to benefit, from the legacy systems.

That is why most organizational measurement systems are dominated by antiquated, obsolete, and outdated measures. Many existing measures seriously constrain performance and prevent breakthrough performance improvements (especially in services and knowledge work), but most workplace environments still discourage trying anything new. Take for example the following typical scenario: A company sends out a team with instructions to “improve” a specific project. More often than not, the team comes back with a set of incremental improvement recommendations that only end up further entrenching the status quo, while declaring victory because the project came in on time and under budget! Trying to innovate without the freedom, and the mandate, to explore unconventional approaches and to take risks ultimately leads to more of the same old measures and, of course, the same old managing.

To improve the focus of measurement in your organization, make sure that you don’t measure too much. Focus on what is most important. Don’t just measure the financial things, the lagging indicators, and what is easiest to measure. Don’t just measure what has always been measured. Focus on at least some of the things that are most important to drive future success. Adopt some innovative, emergent measures to measure those things that are difficult to measure—but vitally important to organizational success.

Selecting the right measures can create enormous performance improvement leverage. But, even great isolated measures aren’t enough.

INTEGRATION

The third key to transformational performance measurement is integration. Integration can be defined as “the state of combination, or the process of combining into completeness and harmony; the combining and coordinating of separate parts or elements into a unified whole.” Integration is the effort that must take place in order to achieve alignment of the parts. Integration is about getting things into alignment and then keeping them aligned. Much of what passes for management today, by necessity, involves trying to get the isolated pieces of work done—turning the dis-integration of our organizations into something that is reasonably integrated. But it is an uphill struggle. Because measurement is so crucial to management, measurement must be used in an integrative way.

As powerful as individual measures are—even transformational ones—they can be poorly used if they are not integrated into a larger “measurement framework” that shows how each measure is related to other important measures and how the constructs (which the measures represent) combine to create value for the organization.

Focusing on isolated measures has tended to build functional “silos” that focus on their own self-serving measures and disregard the measures of other functions. Most companies are composed of pieces vying for scarce resources—operating more like competitors than cooperators—acting individually, without regard to systemic interdependencies. Managers at one financial services company were tracking 142 different departmental performance measures that were totally uncoordinated. No two managers could agree on which measures were most strategically important. People were simply following the traditional, if flawed, logic, which was: “If every function meets its goals . . . if every function hits its budget . . . if every project is completed on time and on budget . . . then the organization will win.” However, it should be clear that such thinking no longer works, if it ever did. Organizations should be focused on the performance of the whole, not on the independent performance of the parts.

In order to make strategy more readily executable through the use of performance measurement, Robert Kaplan and David Norton (1996) developed the concept of a “balanced scorecard,” an organizational scorecard that would facilitate the integration of functional scorecards and enable better organization-wide strategy execution. The balanced scorecard is not just a four-quadrant template for categorizing existing measures—although that might be beneficial if the right measures are already in place. But a balanced scorecard will not make the wrong measures right.

A key to the integration of measurement is developing measurement frameworks, which visually depict the interdependencies between measures. In any interdependent system, you can’t change one measure without affecting the others. With an overall framework that shows the relationships among measures, it is easier to make the proper tradeoff decisions, so more optimal decisions can be made.

Another key point is that the cause-and-effect logic between measures (especially between drivers and outcomes) must be understood. The payoff of doing this well is that organizations will be much better able to predict with greater confidence what should be done to create optimal value for the organization and its stakeholders—and that’s what outstanding management is all about!

So what can be done to increase the integration of measurement? The key as far as integration is concerned is that measures must be aligned with strategy, and then must be integrated across the entire organization (even the extended enterprise). In addition, measurement frameworks will spotlight the potential of “cross-functional measures”—measures that can help to integrate functions and lead to higher levels of collaboration. Develop measurement frameworks to help you “see” the actual and hypothesized cause-and-effect relationships among measures, such as a strategy map. Make sure that everyone has a scorecard (a set of measures for their individual work), a clear line-of-sight between his or her